a) Interest on drawings

When the proprietor withdraws money from the business for personal use, it almost
amounts to temporary loan by the business to the proprietor. The adjustment entry is

Capital A/c Dr. xxx

To Interest on drawings A/c Xxx

b) Bad debts
When a claim against a debtor becomes irrecoverable, it is called bad debt.
The entry in the books of the creditor is:

Bad debts A/c Dr. xxx

To Debtor’s A/c Xxx

Bad debts is shown on the debit side of P & L A/c and also deducted from debtors in the
balance sheet.

c) Provision for discount on debtors

The provision for discount on debtors is calculated at a certain percentage on good
debtors. The adjustment entry is:

Profit & Loss A/c Dr. xxx

To Provision for discount on debtors A/c Xxx

The provision for discount on debtors is shown as a deduction from good debtors on the
asset side of balance sheet and is debited to profit &loss account.
d) Provision for discount on creditors
The creditors may offer some discount for prompt payment by the firm. This is calculated
at a certain percentage on sundry creditors. The adjustment entry is:

Provision for discount on creditors A/c Dr. xxx

 To Profit & Loss A/c Xxx

The provision for discount on creditors is shown as a deduction from sundry creditors on
the liabilities side of balance sheet and is credited to P & L A/c.
e) Loss of stock by accident, fire etc.
Stock of goods destroyed due to abnormal causes must be treated as abnormal loss. If
there is no insurance the entire stock lost should be treated as abnormal loss. The entry is:

Abnormal loss A/c Dr. xxx

To Trading A/c Xxx

Since there will be no recovery, the abnormal loss has to be closed.

Profit & Loss A/c Dr. xxx

To Abnormal loss A/c Xxx

If there is insurance, amount recoverable from insurance co., has to be debited to

insurance company and the balance of abnormal loss is written off to P & L A/c

Profit & loss A/c Dr. Xxx

Insurance company A/c Dr.
To Abnormal loss A/c Xxx